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Will You Pay $100 Less for the Smaller iPhone?

The larger iPhone will cost more, but if Apple is bold it should make the smaller iPhone cost less.

The big story on Apple(NASDAQ:AAPL) over the weekend was the chatter about the consumer tech titan's pricing strategy when it updates its iPhone line in a few months. The rumor mill has been pretty consistent about Apple putting out two smartphones that will come in different sizes. The chatter has also been pretty steady about a smaller 4.7-inch iPhone 6 hitting the market in the fall with a larger smartphone checking in between 5.2 inches and 5.5 inches a few months later.

There doesn't seem to be a reason to stray from Apple's pricing strategy with the first device. The subsidized starting price of $199 is likely to stick. Naturally the larger device will cost a little more to make assuming it has similar features, and it should if Apple learned anything from the softer selling iPhone 5c. Apple has every right to pass on those costs, especially if it doesn't want to dry up sales of the smaller smartphone.

The chatter over the weekend was all about Apple charging $100 more for the larger iPhone 6 and how many consumers won't flinch.

"Our June consumer survey points to continued growth in the willingness of iPhone users to pay $100 more for a bigger screened iPhone, with now a full one-third of survey respondents willing to pay a $100 premium," Raymond James analyst Tavis McCourt writes in a recent note to clients.

Now there's nothing wrong with a third of iPhone loyalists open to paying a bit more for a bigger screen. The balance will flock to the smaller device, and a lot of former iPhone owners wooed by the larger screens of Samsung, HTC, and other Android handsets will consider returning to iOS with the supersized iPhone.

But what if Apple has something a little more daring up its sleeve? What if when the larger iPhone hits the market after the holidays -- a few months after the original iPhone 6 debuts -- Apple makes the brazen move of sticking to the $199 price? What if the smaller yet full-featured device is the one that gets a price reduction at that point? What if the perfectly capable and bar-raising smaller iPhone 6 takes on the role of the scaled back and plastic candy-shelled iPhone 5c?

Apple doesn't have to do it. The slow yet steady growth for the iPhone won't end with a higher price tag, and since the larger screen will cost Apple far less than $100, the supersized iPhone should be its most profitable phone ever. But at a time when Mac sales have stalled, iPod sales continue in free fall, and iPad sales are declining, the iPhone could do so much more if Apple made a bigger push for the masses by giving them the larger phone that they want on one end and the lower price point on a full-featured phone on the other.

Of course Apple will probably never actually do this. It defends its margins religiously. It chooses prestige over market share. But one can argue that it also learns from its mistakes. The iPhone 5c wasn't a complete blunder, but it wasn't the mass-market phone that Apple investors were hoping because the features were dialed back relative to what comparable Android phones can offer. But the push the larger screen finally gives Apple the opportunity to offer an entry-level phone without skimping on the features because it has pricing flexibility with the larger device. Pushing the starting price of the subsidized large iPhone to $299 makes sense, but leaving it at $199 and making the smaller iPhone $100 less would be the move that truly turns heads and wrestles back market share.

Author

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time with more than 20,000 bylines over those 22 years. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he splits his time living in Miami, Florida and Celebration, Florida.
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